AMD COO: 1Q Results 'A Perfect Storm'

That's how Advanced Micro Devices President and COO Dirk Meyer summed up the chip maker's fiscal first-quarter dive, during which four adverse conditions -- lower unit sales and average selling prices, channel inventory shortages, competitive pressure from new Intel processors and a weakening in consumer electronics -- contributed to a $611 million loss.

"While any one of these problems might put a damper on our results for the quarter, the sum total was something of a perfect storm for us," Meyer said.

In a conference call with financial analysts after AMD's first-quarter results announcement on Thursday, Meyer and other executives used the words "terrible," "lousy," "disappointing" and "unacceptable" to characterize the Sunnyvale, Calif., company's 7.4 percent year-over-year drop in revenue. AMD reported sales of $1.23 billion for the quarter. The company has originally projected revenue exceeding $1.5 billion for the quarter but on April 9 had revised the forecast.

According to research firm iSuppli, AMD's share of the overall processor market fell from 16 percent in the fourth quarter to 11 percent in the first quarter, whereas Intel's share rose from 76 percent to 80 percent in that time.

"After 14 consecutive quarters of gaining share, the first quarter was a major setup in the strategic transformation of our company," Meyer said, noting that AMD's expanding number of customers, channels and products has led to increased complexity and that the company is working to better manage its changing business.

Meyer added that a price war started by Intel in the second quarter of 2006 caused many difficulties. "They did everything in their power to protect their monopoly," he said.

AMD CEO Hector Ruiz and his top financial and sales lieutenants claimed that results for the next quarter would be better -- flat or slightly up -- but they were careful not to paint too rosy of a picture for Wall Street analysts, who have seen the company subjected to a fiscal battering during the last two quarters.

"We are not happy with the numbers," Ruiz told analysts in the conference call.

Ruiz acknowledged that AMD hasn't improved much since its "fourth-quarter meltdown" but said he's confident about the company's prospects for a turnaround in the second half, after its "Barcelona" quad-core processor begins shipping in volume, its new graphics cards ship in the second quarter, and cost cuts and supply issues improve its fiscal health.

AMD is facing some growing pains and has created an executive task force to improve the management of its new business model, in which the company is moving from a 100 percent channel business to a hybrid mix of the channel and OEMs, Ruiz said.

AMD plans a restructuring and $500 million in cost cuts, including a layoff of 500 employees, to restore growth in the second half, he said.

For example, AMD has simplified its sales and marketing organization to improve results. The company also has "restored our value proposition to the channel and refocused its market spending on demand generation programs," Meyer said.

This month, AMD brought back one key channel executive, Gary Bixler, to head its North Amercian channel marketing group. Bixler left that position two years ago to oversee worldwide channel development.

In an interview with CRN, Bixler said AMD this year will invest more in its North American channel marketing efforts, despite the company's planned cost cuts.

System builders say they expect a big comeback by AMD this year after its quad-cores hit the market.

"Quad-core will be huge for us in the server business," said Brian Corn, vice president of marketing at SourceCode, a system builder in Waltham, Mass. "We're a big player in four-way and eight-processor systems, and one disadvantage Intel has is they have a four-processor business but not an eight-processor one."

SourceCode expects to begin shipping AMD quad-core systems in July, according to Corn.

Though Intel has a big jump on AMD, Corn said he expects AMD to iron out its problems. "People think they've had one bad quarter, and people are really quick to think AMD is screwed. But they're still in the game," he said.

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